Dollar mixed after rescue plan
Written on September 20, 2008
The dollar tuned mixed Friday after rallying early in the day following the government’s announcement that it was putting together a plan to help banks get rid of bad debts.
Additionally, the Securities and Exchange Commission early Friday moved to halt short selling in 799 financial securities, while the Treasury Department said it would provide temporarily insure the holdings of any publicly offered U.S. money market mutual fund.
In midday trading, the euro rose to $1.4399, up 0.4% from $1.4348 late Thursday. The British pound also rose against the dollar, up 0.9% to $1.8333 from $1.8180 last night.
The dollar continued to rebound against the Japanese yen, rising to ¥107.266, 1.7% above Thursday’s close of ¥105.44
The dollar had been battered against foreign currencies earlier in the week before rebounding Friday.
The Treasury’s plan will need approval from Congress. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke told lawmakers about the options under consideration Thursday evening.
The dollar had seen volatile trading against the major currencies as investors continued to flee to short-term government debt, oil and gold - so-called "safe" assets amid the meltdown in global equities.
On Thursday, the Federal Reserve and other central banks across the world pumped dollars into money markets to try to relieve a credit crunch cash advance. The New York Federal Reserve injected $55 billion into the domestic system, while the Fed transferred up to $180 billion worth of dollars abroad.
"The dollar is rallying due to reports of what appears to be a remarkable intervention by the U.S. authorities," said Ashraf Laidi, chief foreign exchange strategist at CMC Markets US in New York, before Paulson’s plan was confirmed Thursday night. He added, however: "The gains from each of these announcements have proven to be very short-lived."
Laidi referred to the Fed’s bailout of American International Group Inc. (AIG, Fortune 500) earlier this week and today’s pumping of liquidity into global markets.
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